Distinguished Guests, Ladies and Gentlemen,
Since the beginning of this year, in response to the complicated economic situation, the CPC Central Committee and the State Council have been unswervingly implementing policies to deepen reforms, consistently enable people to share in the benefits from reforms, galvanize market vitality and ballast social expectation. According third-quarter financial reports, the over 1,500 companies listed on three market sections saw operating income up by 12.5% and net profit up by 17%. Listed companies recorded double-digit growth in both revenue and profit. This result was achieved while the economy was experiencing accelerated restructuring and severe pain in resolving the issue of excess capacity. It reinforces our confidence and resolve to promote reform and structural adjustment.
The scarcest resource is the market demand in the course of implementing structural adjustment, economic transition and upgrading while maintaining stable growth. Recently, we worked together with China Association for Public Companies (CAPCO) to conduct on-site research. We came to understand that the Chinese economy in transition has great potential for market demand. If we choose to activate demand through adjustment of institutional mechanism, a lot of potential is to be tapped. For example, we should accelerate establishment of a unified national market and break local protectionism brought about by market segmentation. We should remove barriers protecting monopolistic interests and unleash energy for market competition. We should upgrade standards to promote creation of new markets and provide driving forces for industrial upgrading and fostering new industries. High degree of consensus has been achieved in this regard among relevant parties involved.
I would like to highlight two points that came to our attention during the research. First, there are market opportunities in convergence of the military and civilian sectors. In recent years, the state has continuously increased investment in defense technology, and the military industry has become an important arena for independent innovation. Accelerated military-civilian convergence will provide the military industry with fresh market power for sustainable development and enhance economic transition. On the one hand, civilian application of military technology can not only greatly lower cost of expensive research and development in military technology, but also maximize the technology spillover effect. Civilian application will certainly bring about economies of scale and improve stability and adaptability of new technologies in practical application. On the other hand, by steady opening up military supply market, more civilian companies with innovative technologies and products will gain access to new markets, spearheading technology upgrading of civilian companies. From a global perspective, leading military industrial giants are all listed companies. Many of our listed companies are also involved into the military industry. As the 18th CPC National Congress Report proposes, we must pursue a development approach in military and civilian convergence with Chinese characteristics. It will certainly help listed companies open new markets.
Second, I would like to talk about the development of overseas investment market. Through deep participation in the international division of labor, we have made overseas markets an important part in supporting China's economic growth for a long time. However, in recent years, as the international economy is rebalancing, in order to strengthen and expand international market share, we must place equal emphasis on exports and foreign investment, rather than solely relying on exports. We have noted that, since the latest international financial crisis, cross-border mergers and acquisitions (M&As) of SZSE-listed companies have witnessed substantial increase in number. As a new development meriting our attention and support, it showcases the strategic choice of domestic enterprises to take initiatives to adapt to changes in international market environment. However, surveys indicate that our foreign economic cooperation management system has not kept up with the changing demands. For example, listed companies constantly complained about the complicated and prolonged review procedure for overseas M&As. The present situation is that foreign investment, regardless of size, must be submitted for approval, which is likely to cause the company to miss the best timing for acquisition. In terms of promoting foreign investment, we lack specialized agencies like those in Japan and Korea, to deal with the problems widely shared by Chinese companies during the overseas M&As, or strengthen bilateral and multi-lateral cooperation in tax incentives and promote investment facilitation. Accelerating reform in this regard will surely win more market space for our listed companies.
We must promote reform in an all-round way and create a vast market for listed companies to bring its core competitiveness into full play. This not only greatly enhances the quality of economic growth, but also provides investment returns guarantee for investors. It will generate a far-reaching impact on economic and social transformation. SZSE is home to many companies in emerging industries and SMEs, so the structural and institutional obstacles faced by SZSE-listed companies are highly representative in their respective industries. We have built a “Home for Listed Companies” at the beginning of this year to strengthen communication and cooperation between listed companies, streamline industries one by one, to bridge listed companies and relative industry administrative authorities.
Deepening reform in an all-round way and accelerating economic transition and upgrading requires joint efforts from all parties. Listed companies, usually industry leaders with the advantage in capital, should have the capability and responsibility to play a leading role. They must adapt to the shift of government functions, further enhance self-regulatory awareness and cherish the hard-won market. Next, I would like to put forward five proposals for the chairmen present here:
First, enterprises should be the true innovators. The 18th CPC National Congress Report put forward building of an innovative country and a market-oriented technological innovation system led by enterprises with the integration of industries, academies and research institutes. Listed companies should be the leading force. On 30th September, The Political Bureau for the first time held a collective study session in Zhongguancun under the theme of implementing innovation-driven development strategy, and further put forward five tasks. With introduction of various measures such as deduction of five research and development cost items and other tax incentives, and leading innovative resources flow towards enterprises at a higher speed. All these measures have presented rare opportunities for listed companies. In the midst of the accelerated transformation, competitions between companies of different industries, regions and ownership forms have become fiercer. Companies are forced to increase input in innovative efforts in order to gain a firm foothold in the fierce competition. A recent survey jointly conducted by SZSE and China Association for Listed Companies on 1,256 SZSE-listed companies indicated that 49% of listed companies have place “increase input in innovation” as top priority in response to transformation and upgrading. The surveyed listed companies registered 23% and 15% year-on-year increase in R&D input in the past two years respectively, a testimony to their willingness to enhance innovation.
Second, enterprise should reinforce the sense of self-discipline while applying financial instruments in the capital market. As reform in the capital market goes on, ex-ante examination and approval will be substantially reduced. Under such circumstance, listed companies should pay more attention to the balance of interests of different parties and strengthen the sense of self-discipline in fundraising. Companies should not seek instant success while sacrificing long term good. We have been promoting reforms to facilitate M&As. However, we noticed that some companies have abused the mechanism by applying differentiated valuation means in acquiring assets from related parties or disposing assets, which aroused suspicions among investors. It must be realized that if a small group of listed companies exercise poor self-discipline and the market’s self-restraint mechanism does not function as well as expected, the reform will be dragged down, ultimately harming the interest of listed companies as a whole.
Third, enterprises should strengthen investor relations management. To bring the market in full play in resources allocation means that market restrictions will be the most direct and major constraint for enterprises. To take full advantage of the capital market, listed companies must respect the capital market and value their investors. Only if and when listed companies manage investor relations in the same way as treating customers, can they win understanding and recognition from shareholders and investors and realize their capital market strategy. The Chinese capital market has skipped a few development stages that overseas mature markets have gone through. Listed companies were forced to deal with the investors from around the nation in all of a sudden; issuers, without the chance to choose shareholders in the first place, lacked experience and awareness in shareholder and investor relations management. It is time to make up for the gap, otherwise the advantage of capital market is likely to turn into disadvantages and hobble the development of companies.
Fourth, enterprises must emphasize on vocational training. Experts said that over the past three decades of economic growth, the lack of attention in cultivating high-caliber professional workforces has weakened competitiveness of Chinese companies. In reality, a workforce that masters the core technology of the company is a unique human capital and is few and far in between in the labor market. The company has to foster such talents by itself. A number of SZSE-listed companies, through collaboration with technical schools, have already initiated specialized training for their employees. In this regard, enterprises should intensify efforts to learn from manufacturing powerhouses such as Germany, to bring the most cutting-edge equipment, rather than the outdated ones, into vocational training. So that workers can keep abreast of the latest technologies. This is critical to the forming of corporate core competitiveness, as well as creating a positive social effect.
Fifth, enterprises should integrate themselves into local community development. Community participation and development is an important topic of corporate social responsibility. Since listed companies tend to have significant demonstration effect over SMEs in the neighborhood, they should take the initiative to assume social responsibility in business decision-making and operational activities. SZSE is committed to nurturing SMEs. Nearly 60% of SZSE-listed companies locate in county-level or prefectural-level areas, who witness their entire growth process from infancy to maturity. We must bear in mind that, first, listed companies should not default on loans of local SMEs in the same surviving community. We should base on contracts and create a good business ecosystem for local SMEs; second, listed companies should offer start-up companies their first orders and make contribution to the local entrepreneurial environment. Listed companies are the best performing enterprise groups. They should strive to bring the capital market’s role in promoting economic development and entrepreneurship into full play.
Standing at a new historical height, listed companies are faced with a rapidly and drastically changing environment. Systematic obstacles hindering development for a long time are expected to be eliminated. Meanwhile, new challenges and constraints that we have little knowledge about are confronting us head on. Accommodating such changes and accelerating transformation and upgrading creates new opportunities and challenges for listed companies. Firmly based on capital market platform, we will make joint efforts to seize opportunity where the system releases benefits for the people from the deepening of reform, and make contributions to economic restructuring and industrial upgrading and enhance the returns for investors.